Buying a property is an exciting experience, but before you can fully enjoy your new home, you’ll have to go through the process of closing. And if you’re not prepared, closing costs can quickly become a real pain in the…wallet.
Closing costs are the fees you pay when you finalize the purchase of your new property. They can include everything from legal fees and taxes to appraisal fees and title insurance. And while they can vary from state to state, they generally add up to around 2% to 5% of the purchase price of the property.
So what exactly are closing costs? Let’s take a look at some of the most common fees.
Appraisal Fees: Before a lender approves your mortgage, they’ll want to know the value of the property. An appraiser will be hired to evaluate the property and give an estimate of its worth. This fee usually ranges from $400 to $750.
Title Insurance: This insurance protects the lender and the buyer from any legal claims against the property. It ensures that you have clear ownership of the property and that no one else has a claim to it. The cost of title insurance can vary depending on the state and the value of the property. Here in New Jersey, we typically pay around $2,000.
Taxes: Property taxes are one of the most significant closing costs. The amount you’ll pay depends on the value of the property and the location. Be prepared to pay anywhere for your first 3 months of property taxes upfront at the closing table. Based on where you live, this could mean a few hundred bucks to a few thousand. I’d suggest knowing your property taxes well in advance of even making an offer on a home.
Legal Fees: You’ll need a lawyer to help you review and sign all the paperwork. The cost of legal fees usually ranges between $1,500 and $2,000 in my experience.
Home Inspection: Before finalizing the purchase of your new home, you’ll want to get it inspected. This will ensure that there are no hidden issues with the property. The cost of a home inspection can range from $350 to $700 in most cases.
While closing costs can be daunting, there are ways to lower them. For example, you can negotiate with the seller to pay for some or all of the closing costs. Additionally, some lenders offer no-closing-cost mortgages, which means you won’t have to pay any closing costs upfront. Instead, they’ll be rolled into your mortgage payments. Also, having a relationship with appraisers, attorneys, inspectors can get you better pricing as well (shameless plug for The Crowned Club haha).
In conclusion, closing costs are a mostly unavoidable but very important part of the home buying process. While they may seem like a burden, they’re necessary to ensure that you have a clear and legal ownership of the property. With a little bit of research and negotiation, you can lower these costs and be well on your way to owning your new home.
